The interest expressed by Volkswagen met with a very positive response from the government in Prague, which took a liberal economic line, having already begun the process to privatise state-owned companies in 1990. The government was also looking for a strategic partner for Czech industry’s flagship and one of the country’s largest foreign exchange earners. So a self-confident Czech government began negotiations with interested car-makers, calling for a clear commitment to the continued existence and further development of Škoda. Volkswagen was happy to comply with this concern, since it coincided with the company’s own plans for the future positioning of the new brand. At the same time, Wolfsburg indicated its willingness to make major investment. A total of nine billion Deutschmarks was earmarked over a five-year period for modernising production facilities and expanding capacity to an annual 400,000 units. The commitment to integrate Škoda with its own model range as the fourth brand in the Volkswagen Group was additionally of high symbolic value. On an equal footing with the other brands, the Czech car-maker was to profit from the synergy effects and cost benefits of the global procurement and production alliance. On December 9, 1990, Prague gave Volkswagen the go-ahead to acquire a stake in Škoda. The joint venture agreement signed on March 28, 1991 set out the keynotes of this partnership and laid the foundation for Volkswagen AG to acquire an initial 31 percent stake in the shares of Škoda, automobilová a.s. on April 16, 1991, assuming managerial control of the new subsidiary.
The History of Škoda
A fundamental social and economic transformation began in 1989 as the Iron Curtain came down. Czechoslovakia, with its relatively well-developed industry, seemed best equipped to make the transition from a planned to a market economy. From the viewpoint of the Volkswagen Group, this did not merely bring the prospect of a very promising sales market just across the border. The Czech automobile manufacturer Škoda was a prospective co-operation partner as a springboard to entering emerging markets in Eastern Europe. There were many substantial reasons for acquiring a stake in the state-owned company based in Mladá Boleslav. Škoda was a brand which was rich in tradition, very well known in the former Eastern Bloc countries, and sold well. The Czech car-maker was already selling to Western Europe, and Volkswagen believed that, with improvements to the model range, Škoda could expand its position further. Production structures at the plants in Mladá Boleslav, Vrchlabí and Kvasiny had been recently modernised to produce the Favorit starting in 1987, and expanding those low-cost capacities would not be a problem. Combined with a well-trained and flexible workforce, Volkswagen was of the opinion that Škoda had everything it took to swiftly become a competitive member of the Volkswagen Group.
From 1926 onwards, the fruits of this merger were obvious at the Mladá Boleslav plant. New production facilities with assembly lines producing models covering all vehicle segments, from the Type 110 compact to the Type 350 luxury car, were built. Ref lecting the growing success of this business line, Škoda reorganised its car-making activities as a separate subsidiary in 1930. Four new model series took the company through the years of crisis that followed. The Popular, Rapid, Favorit and Superb were synonymous with innovative vehicle design and production engineering. The Popular, with its technically advanced features including a steel tube frame, trans-axle construction and independent suspension, soon became the Czech equivalent of the Volkswagen, while the Rapid and Favorit set new standards in the mid-class. The extravagant and powerful Superb was Škoda’s scintillating f lagship model in the luxury class. Sales justified these courageous yet commercially sound concepts. In 1936, Škoda became the market leader in Czechoslovakia, with exports also playing a growing role in the company’s success. The advent of the Second World War in 1939 brought the company’s development to an abrupt halt. Allocated to the Reich manufacturing corporation headed by Hermann Göring, the production of civilian vehicles took a back seat. Škoda instead became part of the war economy, producing aviation parts, munitions and trucks until 1945.
The post-war order consigned Czechoslovakia to the Soviet sphere of inf luence, marking the start of a systematic industrial restructuring based on extensive nationalisation. As a consequence, the Škoda group was disbanded in 1946 and divided up among various collective combines. The plant in Mladá Boleslav and the Škoda brand were all that remained of the automotive division. However, a new perspective did develop under a planned economy. The Communist government championed the cause of mass mobilisation, and was therefore interested in the continued existence of the Škoda plant. The Vrchlabí and Kvasiny plants were integrated at the end of the 1940s to boost capacity, so that large numbers of the new model series could be built from 1955 onwards. The Škoda 440 and its derivatives, with their beautiful lines and impressive fuel economy, put the company back on track. The Octavia saloon and the Felicia convertible were export hits. The revenues generated were ploughed back into Mladá Boleslav, where work on modern production plant began in 1960. Almost 460,000 units of the rear-engined Škoda 1000 MB rolled off the assembly line there between 1964 and 1969, with over half destined for export.
As the 1970s dawned, the planned economy was increasingly hampering the progress of Czech industry’s f lagship. Exports crumbled as a lack of financial resources made it impossible to modernise either the model range or the production facilities. Even the vehicles sold in the 1980s were still mainly based on the now outdated concept of the 1000 MB. In an effort to stem the creeping decline in competitiveness, Škoda began to search for new creative impetus, and found what it was looking for in Italian designer Nuccio Bertone. His blueprint reached production maturity in 1987, coming off the assembly line as the Favorit. The fast-moving social change triggered by the “Velvet Revolution” in Czechoslovakia in November 1989 led Škoda into partnership with the Volkswagen Group in 1991. Investment and know-how from Wolfsburg was urgently needed to put Škoda in a position to respond to the dramatic collapse of East European automotive markets. The loss of these markets could initially only be compensated by a more intensive commitment in Western and Southern Europe. However, to survive in those regions, competitiveness had to improve significantly. The transformation process to bring this about lasted until the mid-1990s. Productivity doubled as a result of rationalisation measures, without entailing drastic job losses. Škoda was integrated into the Volkswagen Group’s supply alliance, bringing further cost benefits and generating the company’s first annual profit. Škoda also moved closer to customers with its own sales organisations in Germany, Poland, Slovakia and Bosnia-Herzegovina, as well as by expanding its dealer network.
The foundations laid in previous years began to pay off in 1996. For Škoda, the new Octavia not only represented the successful expansion of the model range, but also marked the beginning of a new era in production engineering and organisation. The new facilities at Mladá Boleslav were the almost ideal embodiment of two key strategies in the Volkswagen Group. Systematic support for the local automotive component supply industry had established the industrial infrastructure around Mladá Boleslav required to make the transition to lean, modular production. Moreover, the Octavia’s engineering based on the standardised Group A4 platform guaranteed high quality and further cost savings. Value for money, a high standard of vehicle safety, innovative technology and stylish design characterised both the Fabia launched in 1999 and the Superb presented in 2001. This attractive model range added to the profitability of the Mladá Boleslav, Vrchlabí and Kvasiny plants were the ideal prerequisites for successful international isation of production. Škoda opened an assembly plant in Aurangabad, India, in 2001. In 2003 production started at Solomonovo, in the Ukraine. And in 2005, facilities in UstKamenogorsk, Kazakhstan, began operating on the basis of a co-operation agreement. The Czech company also holds a stake in OOO Volkswagen Group Rus, whose plant in Kaluga opened in November 2007, also builds vehicles bearing the winged arrow logo. Škoda thus played a pioneering role in developing high-growth emerging markets in Asia and Eastern Europe. Other Group brands are now also profiting from this early engagement. In 2008 Škoda’s plant in India began producing the V W Passat and Jetta, as well as the Audi A4 and A6. The production alliance in India is likely to deliver further synergy effects after the Volkswagen plant opened at Pune in March 2009 began producing the Škoda Fabia as well as the V W Polo. Production was also started at the Anting, Yizheng and Ningbo facilities in China. The Czech company employed almost 25,890 people in total in 2014.